Conditions for the validity of preliminary contracts and complications in their implementation part 1
Conditions for the validity of preliminary contracts and complications in their implementation part 1
1. Preliminary contracts must meet all the conditions necessary for the validity of the contracts.
The preliminary contract has its own legal existence, performance and consequences of non-performance different from those of the final contract. It is used to negotiate, prepare and ensure the future conclusion of the final contract. The preliminary contract is valid and can give rise to the legal consequences related to it / including the legal protection under Article 19 of the ZZD / only to the extent that it refers to the conclusion of a valid final contract from the point of view of the law. In this regard, Article 19 paragraph 2 of the LLPA expressly provides that the preliminary contract must contain stipulations regarding the essential terms of the final contract. This requirement is self-evident, because the preliminary contract prepares the conclusion of the final one, it must contain stipulations regarding its essential conditions, in this regard, it must be emphasized that this connection between the content of the preliminary contract and that of the final one is not accidental in order to exercise the rights.
2. When selling regulated yard sites, the parties must carefully check whether the subject of the transaction is an independent plot of land even when concluding the preliminary contract. According to our civil law, sales of both actual real estate and ideal parts thereof are permissible. This applies not only to unregulated properties but also to regulated ones. But, if the concluded contract promises the sale of a real part of the regulated plot, the contract should not be considered null and void.
3. The following cases are of practical interest:
The parties conclude the preliminary contract for a certain real estate, but there are certain burdens on it, for example, a foreclosure or a ban on construction, etc. Can the buyer, in this situation, refuse to fulfill the contract?
There is no dispute if the seller was well aware of the existence of all these restrictions on the property before the conclusion of the contract, and nevertheless deliberately misled the buyer that they did not exist, and only because of this he was able to reach an agreement with him to conclude the transaction , the buyer has the right to attack the preliminary contract on the ground of fraud. Usually, a clause is agreed in the preliminary contract that the property is transferred free of any encumbrances, such as foreclosures and so on. This may have been stated explicitly. But the intention of the parties in this sense can be deduced by way of interpretation. The buyer later learns that there are known foreclosed building restrictions etc. on the property and wants them lifted. If this is not done before the conclusion of the final contract, he has the right to renounce the preliminary contract and request its cancellation.
In such cases, the seller cannot refer to the contract and ask for a court decision to replace the final contract. The court in such circumstances, if the claim is valid, means to force the buyer to accept a performance inconsistent with the agreed upon.
4. But the parties to the preliminary contract may not have mentioned anything on this matter, and when the sale is carried out and the inspections carried out, it turns out that there are encumbrances, building restrictions and others on the property. In these cases, if both parties in good faith did not know at the time of the preliminary contract of the above circumstances, or the seller knew, but it was not mentioned during the negotiations, that the buyer wanted the property to be free of encumbrances and building restrictions, the situation is something else. At first, whoever buys a property should pay attention in all matters, carry out a complete research of the property of his choice. If he has not done so, he has no right to refuse to fulfill the concluded contract. The buyer under the preliminary contract, regardless of the encumbrances on the property, about which he learns later, is obliged to fulfill the preliminary contract concluded by him. He cannot refuse payment of the price or ask for its reduction due to these circumstances.
In the same way, the issues should be resolved when there is a preliminary exchange contract and it is established that there are any encumbrances or administrative-construction restrictions on one of the properties. Each case will be approached specifically.
5. If already during the inclusion of the preliminary contract, the parties knew that proceedings had begun for the expropriation of the property, which later ended without obstacles. In such a case, the seller is objectively unable to perform.
6. The situation is similar when, due to a change in the regulatory plans, the property, which is the subject of a preliminary contract, has ceased to exist. It can be distributed between the neighboring plots and not be assigned a regulated plot. In this case, the selleris in an objective inability to fulfill his obligations and should be released both from his main obligation - the transfer of ownership, and from payment of the contractual penalty.
7. A preliminary contract can also be concluded for the future sale of undeveloped yard sites. But before a final contract is voluntarily concluded within the stipulated period, proceedings for the expropriation of plots of land for group housing construction under the town planning plan of the settlement begin.
If the owner of the property has entered into a preliminary contract for future sale before the price for the expropriated place has been paid to him, he must fulfill it within the agreed terms. If he voluntarily refuses to do so, the valid party to the contract may request a decision to replace the notarial deed.
8. The immovable properties are individualized with their borders. Usually their square footage is indicated only approximately. It is specified during the execution of the notarial deed based on the sketch presented by AGKK. Therefore, if there is a difference in the square footage between what was agreed in the contract and the exact measurement, the contract should be considered perfect, but to the extent of the actual square footage. Sometimes in the preliminary contract, the square footage of the property is raised as an essential element, as the buyer wants to buy a property of a precisely defined size, either with a view to development or for other reasons. If later, when measuring it, there is a significant difference between the actual size and the promised area, in fact, the parties have not agreed on one of the essential elements of the contract. By right it is offered to the buyer to buy a property, significantly smaller as speaking and for the same price in such a case the buyer and in his right to withdraw from the inclusive contract Moreover he can seek damages for the damages suffered from the non-performance of this contract.
9. One of the essential elements of the contract is the price and it is correct that it should be fixed. But sometimes the parties can negotiate not the price of the entire property in total, but only per square meter, in which case the price of the entire property will be determined according to the established square footage from the sketch of the technical service. In such cases, the preliminary contract is valid and if it is not fulfilled in time, its final conclusion can be requested by issuing a court decision.
10. When concluding preliminary contracts, their validity may be subject to a certain condition.
In case of divorce: it is considered that with the preliminary contract of sale, when the defendant has transferred his share of a real estate to his spouse and agreed that the contract will have force and meaning only if a divorce is reached in the divorce case, he has entered into a valid contract. The purpose of this clause of the preliminary agreement is to regulate the property relations between the two spouses in the event of divorce. There is no obstacle or morals and conditions not permissible by law that make the transaction null and void. This understanding is correct.
11. The parties may agree on a cancellation clause in the preliminary contract. In such cases, an agreement is reached between the contracting parties that each of them has the right to withdraw from the contract by paying a certain amount of money. This contract is not expressly regulated by law, but it is not prohibited either.
12. The validity of some preliminary contracts requires a written form. In this regard, Art. 19, para. 1 of the ZZD stipulates that "the preliminary contract for the conclusion of a definite final contract, for which a notarial or notarized form is required, must be concluded in writing." to establish legal certainty.
13. In practice, the question is often raised, if one of the parties does not participate in person when concluding the preliminary contract, but through a proxy, whether the power of attorney authorizing him for this transaction must also be in writing?
The case law is categorical and gives a positive answer to the question. But it goes further by not considering the absence of a written power of attorney as a reason that can lead to the nullity of the contract, but allows its validation if the principal confirms the actions of his proxy by letter. This opinion is correct, it complies with the law, since Art. 42, para. 2 of the ZZD allows "the person on whose behalf a contract was concluded without a representative of authority / and in this case there is none, as long as the power of attorney is not in writing/, can confirm it. The confirmation requires the same form that is provided for the authorization of the conclusion of the contract.
Attorney at law Iuila Danova
#3, Dobrotica Str., Varna, Bulgaria
Mob: +359 895 64 59 40
WWW: advokatvarna.com
Email: iulia.danova@abv.bg